Dell: Analyst Sees A Potential Double

By Eric Savitz

Dell(DELL) isn’t dead yet. And in fact, Craig-Hallum analyst Christian Schwab this morning goes so far as to suggest the stock offers investors a potential double.

Asserting in a research note this morning that the company can still “get its groove back,” Schwab this morning launched coverage of the stock with a Buy rating and a $19 price target – that’s nearly twice yesterday’s close at $9.83, and higher than the 22 other Dell price targets tracked by Thomson/First Call.

“Rarely do investors get a chance to buy MegaCap, MegaRevenue, MegaBrand tech companies that have the potential to nearly double, but that’s exactly what we believe dell could offer investors over the next year,” he writes.

He offers a four-part thesis for his aggressively bullish stance on the stock:

The stock is at or near trough valuation on price/cash flow, price/book, EV/EBITDA and forward P/E.

The company has a multi-year plan to right-size the business, and has already cut operating expenses substantially, bringing down cost per box by 5%. Total cost reduction target is now $4 billion.

He is optimistic that IT spending will improve in the second half “as large corporations recover and credit becomes more available to small- and mid-sized businesses.”

With even a modest economic recovery, he writes, the company could see “meaningful P/E expansion” as investors look for liquid, inexpensive, financially powerful companies.” He thinks the stock could trade up to 15x his EPS estimate for the January 2011 fiscal year of $1.26.

Schwab also contends that if he’s wrong, “downside is limited given the company’s continual profitability, significant free cash flow generation and current low valuation.”

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There are 5 comments

APRIL 8, 2009 11:28 P.M.

No IP at all... wrote:

You must be joking. Dell has no IP, they've been hollowed out by Intel, they compete solely on price vs. companies that have IP (like NetApp or HP). They're toast... Intel destroyed them.

APRIL 9, 2009 6:10 A.M.

Jim wrote:

This is just silly. Look at Dell's debt to equity ratio-- it tells us that the company is badly run. Product line is boring and will not inspire customers to purchase in these economic times. IBM & HP are doing a pincer move in Dell's services and server markets. And Dell's answer is to try to compete with Apple's MacBook Air or forth coming tablet? Dell needs to have a purpose, a reason for the market to support it, beyond low prices and customizing, advantages that are now gone.

APRIL 9, 2009 9:17 A.M.

Alan wrote:

Apparently the last two are shorting Dell and trying to force good numbers for themselves. They have no clue. Dell will definately make them eat their words and their shorts!!!

APRIL 9, 2009 11:49 A.M.

Paul wrote:

Debt to equity ratio? The company has over $9B in cash. It is still generating more cash. Despite soft quarters recently the company STILL is making money, with numerous channels for expanded growth (managed services, storage, x86 server, small screen devices). At $10 a share, you are buying the company for about $5, and securing $5 by the cash alone that Dell currently holds.

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